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Weak gadget sales hurt Best Buy, Sears

Best Buy and Sears on Thursday both blamed their weak quarterly results on the fact that shoppers aren’t shelling out for consumer electronics.

Already squeezed by tough competition from online retailers like Amazon.com and discount stores like Wal-Mart and Target, retailers like Best Buy and Sears have been cutting costs and revamping merchandise and store formats to attract customers.

But the consumer electronics segment remains stagnant. Sales haven’t budged from about $145 billion in three of the last four years, according to research firm NPD Group.

Part of the problem is consumers are holding out for smartphone and tablet computer launches this fall. Apple and Samsung are expected to debut new products, and an Amazon smartphone is rumored to be in the pipeline. Meanwhile, experts say things like the ultra-high definition 4K TVs have not been compelling enough for TV owners to upgrade.

“The category was weak. There’s no ‘Wow’ type product to get people in stores or even online,” said Brian Sozzi of Belus Capital Advisors.

One exception: trendy products like wearable fitness devices. Sozzi said they’re “in demand, but not as in demand as you think.”

The result is weak sales. Best Buy said revenue fell 3 percent to $9.04 billion during the quarter that ended May 4. And revenue in stores open at least 14 months, a key retail metric, declined 1.9 percent. The company expects the metric to decline in the next two quarters as well.

“As we look forward to the second and third quarters, we are expecting to see ongoing industrywide sales decline in many of the consumer electronics categories in which we compete,” said Best Buy CFO Sharon McCollam. “We are also expecting ongoing softness in the mobile phone category as consumers eagerly await highly anticipated new product launches.”

Sears, meanwhile, said TV sales were especially weak during the quarter, particularly at Kmart. Revenue in stores open at least one year edged up 0.2 percent at Sears stores but fell 2.2 percent at Kmart, and weak consumer electronic sales contributed to more than 1 percentage point of that drop.

“The biggest negative contributor to sales has been from our consumer electronics business at both Sears and Kmart,” said billionaire hedge fund investor Eddie Lampert, who is Sears’ chairman and CEO, in a prerecorded call. “To address this decline, we are moving this business from a focus on selling televisions to a company empowering ‘connected living,’ which will bring together our capabilities in fitness equipment, electronics, appliances, home services, and auto services.”

Stephen Baker, an NPD consumer technology analyst, says unless a new game-changing product like the iPad is introduced, consumer electronics sales are unlikely to budge much.

“It’s a pretty mature category, and for every great opportunity like 4k TVs or touch notebooks, there are continued declines in cameras, small screen TVs, or desktop computers,” he said. “Right now, there isn’t anything that can provide $5-, $6- or $7 billion in incremental sales for the industry. And when you’re a $145 billion industry, that’s what you need to move the battleship.”

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